May 16, 2020

Technology transforming finance: the state of play in Africa

James Scott, Chief Digital Off...
5 min
The past few years have seen Africa emerge as a hotspot for innovation in financial ecosystems. For anybody, anywhere, interested in the potential of te...

The past few years have seen Africa emerge as a hotspot for innovation in financial ecosystems. For anybody, anywhere, interested in the potential of technology to transform economic infrastructure globally, Africa is where they will find the future today. In certain locations, the application of modern telecommunications, digital and mobile technologies to everyday life and commerce is exceeding that which can be found in the developed world. 

Some of this change is being forged by uniquely African factors, opportunities and challenges. We are seeing this play out in a number of different ways, from diaspora flows back onto the continent, the proliferation of mobile money and the role that corporates are playing to leveraging digital technologies to improve supply chains and connect with their customers. 

So these are exciting times for Africa indeed,  but the transformation is still very much a work in progress – so what are we currently seeing in terms of activity and focus?

Getting the user experience right

We are seeing good growth in smart phone penetration and with that a big focus on getting the customer experience right. Building and deploying products and services into consumer’s hands with the right kind of experience is a big driver for many of the various players on the continent. The underlying payment rails have evolved rapidly with mobile money and banks modernising some of their payment capabilities, that the consumers are starting to enjoy new and innovative ways of moving funds across the continent. There are a number of fintech’s entering this space, finding parts of the value chain where there are underserved client needs and are building and deploying innovative solutions into these areas. African startups are providing great solutions to real problems and this is a trend we believe will continue to scale. 

Another important trend on the continent is the role aggregators are playing given the fragmentation of services across the continent. There are market nuances, regulatory environments as well as a diverse range of market participants in African markets. Given this diversity we have seen the emergence of some very strong aggregators to start joining up the pieces, particularly in the cross-border space. With mobile money becoming so pervasive, but individual networks being different in complex ways, this aggregation factor is key to making the whole landscape work seamlessly. We’re also starting to see these aggregation mechanisms drive stronger connectivity between the continent itself and the wider global markets.

Digitisation and technical innovation

While the UI layer is the focus of a lot of activity, this is partly due to it representing the lower-hanging fruit. Big shifts in the underlying mechanisms to move money has been much slower, but the promise and maturing of Blockchain technology as well as the continents natural drive to leverage new and modern technologies like mobile, cloud, data and artificial intelligence will mean that this is the next trend to watch.  

We will likely see this play out in a number of areas at it relates to financial services, everything from processing mechanisms, speed of innovation, lower cost infrastructure as well as new ways of moving money and managing identity.. The latter will be a crucial ingredient as Africa’s digital ecosystem matures. A lot of the issues that organisations face moving funds into and around Africa relate to transparency, the difficulty of tracking money and ensuring funds are received by the appropriate beneficiary and used accordingly and the benefits of many of these digital solutions will start to address this. 

Each of the emerging technologies provide the continent with unique opportunities and we are seeing great momentum from some regulators in different markets. Blockchain and the successful pilot of this technology in South Africa, as well as the recent announcement of a regulatory sandbox for Fintech collaboration in South Africa are good examples of many of the participants in the market looking to experiment and support growth of this sector. Big data and the opportunity this provides banks, corporates as well as fintech’s is another area we are seeing great prospects for innovation. 

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All hands on deck

All of these moving parts amount to the creation of a whole new ecosystem – no one single provider or part of the market can square the whole circle. Collaboration and network-forming is the order of the day. While there is understandably a lot of focus on the smaller fintech disruptors, incumbents such as traditional bank and regulator’s are also very keen to get involved. Some of the regulatory shifts in Europe have accelerated open banking and while this is not regulatory driven in Africa, we are seeing many players start to look at opening up API’s which will become a big catalyst for innovation and new business model development. 

Big foreign institutions are also eager to be involved, and not just financial ones – given the centrality of online and mobile to these new systems, big tech companies can also see opportunity. This is an exciting time for the continent and as always Africa has the potential to accelerate its development in this space. 

 

For more information on all topics for FinTech, please take a look at the latest edition of FinTech magazine.

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Jul 23, 2021

Robinhood faces $35mn fine from New York DFS

Robinhood
IPO
Nasdaq
gamestop
2 min
Robinhood faces $35mn fine from New York DFS
Robinhood announced it had reached a ‘settlement’ with regulators and is on target for a $35bn valuation for its initial public offering

The renegade trading platform, Robinhood, which was central to the GameStop shares frenzy earlier this year, faces a US$35mn fine from New York financial regulators.

The company’s crypto division was issued with a wrist slap in 2020, following the red flagging of several “matters requiring attention”. Robinhood revealed it had reached a settlement with the New York State Department of Financial Services regarding the issues, which related to “alleged violations” of cybersecurity and anti-money laundering rules.

Robinhood valuation

The news follows on from the announcement earlier this week that the trading platform favoured by armchair investors, which almost broke Wall Street earlier this year, has an expected valuation of $35bn following its IPO.

Critics of the platform say Robinhood encourages “risky behaviour” among inexperienced (armchair) investors. The app has also been criticised for not informing customers that much of its profits are generated by routing their trades to Wall Street firms taking the other side, or so-called "payment for order flow."

Robinhood said last month they expected the DFS fine to be at the $15mn mark, adding it would be “the bottom of the range for our probable loss in this matter”. The $35mn penalty is on top of the record $70mn Robinhood incurred from US financial regulator FINRA in June, for “lax vetting and outages.”

However, the settlement indicates the company’s IPO will go ahead as planned, despite initial concerns the investigation could see the float delayed until later this year.

Robinhood floats imminent

Despite the regulatory hiccups, Robinhood priced its IPO between US$38-US$42 per share, giving the platform the US$35bn valuation and analysts predict the firm’s debut on the Nasdaq could occur as early as next week.

Reports suggest that 55 million shares will be offered. Robinhood founders, Baiju Bhatt and Vlad Tenev are also set to sell 2.63 million shares.

Robinhood democratising investment

Launched in 2013 by Tenev and Bhatt, who were Stanford University roommates, Robinhood’s founders will retain most of the voting rights after the IPO. Bhatt reportedly holds 39% of the voting power of outstanding stock, while Tenev holds 26.2%.

The online brokerage, which came under fire for its handling of the GameStop trading debacle, which saw the platform limit stocks to investors, states its mission is to “democratise” investing and is one of the most highly anticipated IPOs of the year.

Robinhood was valued at $11.7bn in autumn 2020 following a private equity funding drive. The new valuation will mean represent a three-fold increase in the company’s market value in less than 12 months.

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